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United States Government Accountability Office:
GAO:
Report to the Chairman, Special Committee on Aging, U.S. Senate:
November 2010:
Social Security Reform:
Raising the Retirement Ages Would Have Implications for Older Workers
and SSA Disability Rolls:
GAO-11-125:
Contents:
Letter:
Agency Comments and Our Evaluation:
Appendix I: Social Security Reform: Implications of Raising the
Retirement Ages:
Appendix II: Summary of Studies Assessing the Effects of Raising the
Retirement Age:
Appendix III: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Abbreviations:
AIME: Average indexed monthly earnings:
DI: Disability Insurance:
EEA: Earliest eligibility age:
ESTR: Employment Support for the Transition to Retirement:
FRA: Full retirement age:
HRS: Health and Retirement Study:
HUD: Department of Housing and Urban Development:
OASI: Old-Age and Survivors Insurance:
OASDI: Old-Age, Survivors, and Disability Insurance:
SNAP: Supplemental Nutrition Assistance Program:
SSA: Social Security Administration:
SSI: Supplemental Security Income:
WIA: Workforce Investment Act:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
November 18, 2010:
The Honorable Herb Kohl:
Chairman:
Special Committee on Aging:
United States Senate:
Dear Mr. Chairman:
Life expectancy has increased over the last several decades, and by
2050 persons age 65 or older will account for more than 20 percent of
the total U.S. population, up from about 13 percent in 2000. Without
significant changes in retirement decisions, these improvements in
longevity are expected to lengthen the average number of years that
Americans spend in retirement and contribute to the expected long-term
revenue shortfall in the trust funds for Social Security's Old-Age and
Survivors Insurance (OASI) and Disability Insurance (DI) programs
(collectively knows as OASDI). The 2010 report from the Social
Security Board of Trustees projects that the trust funds' assets will
be exhausted by 2037.[Footnote 1]
In light of the long-term trust fund solvency issues and increased
longevity, many have suggested changing the earliest eligibility age
(EEA) at which workers first qualify for retirement benefits, the full
retirement age (FRA) at which they receive full benefits, or both.
[Footnote 2] By reducing monthly benefits for those taking early
benefits or delaying eligibility, raising the retirement ages could
create an incentive for workers to delay retirement, thus earning more
income and possibly saving more for retirement. However, raising the
retirement ages would likely increase the number of workers applying
for and receiving DI benefits. More DI applications and beneficiaries
would reduce some of the financial savings for the combined OASI and
DI trust funds and increase the Social Security Administration's (SSA)
disability caseload, which already faces a serious backlog.[Footnote
3] Further, higher retirement ages would mean that many workers in
their sixties would have to wait to receive retirement benefits or
receive lower benefits. As a result, this could create a financial
hardship for those who cannot continue to work because of poor health
or demanding workplace conditions, but do not qualify for DI or
Supplemental Security Income (SSI), a separate assistance program
administered by SSA for certain people with limited income and assets.
In this context, you asked us to address issues related to the
potential impact of raising the EEA or FRA on the DI program and on
older workers--in general, workers in their sixties, but in particular
those approaching age 62, just prior to becoming eligible for
retirement benefits. This report answers the following questions: 1)
What do the health, occupational, and demographic characteristics of
those near retirement age indicate about the potential for these
individuals to continue working at older ages? 2) What is known about
the effect a change in Social Security's EEA and FRA could have on
retirement and disability benefits and applications for disability? 3)
What policy options might help mitigate the effects of increased
retirement ages on those who may not be able to work longer?
To address these objectives, we:
* conducted an analysis of data on older workers using the Health and
Retirement Study (HRS);[Footnote 4]
* reviewed selected studies of health, occupational, demographic, and
financial conditions of older workers;
* reviewed selected studies of the impact of changing the retirement
age;
* reviewed relevant federal laws and regulations;
* interviewed SSA officials and reviewed related agency data; and:
* interviewed experts and reviewed literature to identify potential
policy options that have been proposed to mitigate the effects of
raising the retirement ages on older workers.
We do not intend the options identified by the experts we interviewed
or identified in our research to be an exhaustive list. In addition,
we did not assess or evaluate the potential policy options that were
proposed to mitigate any potential impacts of a change in the
retirement age, nor do we necessarily recommend any such options. We
found the data to be sufficiently reliable for the objectives of this
report.
We conducted this performance audit from May 2010 to October 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
On October 21, 2010, we briefed your staff on the results of our
analysis. We have also updated the enclosed slides after the date of
our original briefing. (See appendix I for the briefing slides.) This
report formally conveys the information provided during this briefing.
In summary:
* While general improvements in longevity, health, and workplace
conditions over recent decades suggest that most workers would be
capable of working to a later retirement age, many older workers would
face health or physical challenges that could prevent them from
working longer.[Footnote 5] According to our analysis of preretirement
age individuals using the HRS, about one-quarter of age 60-61 workers--
those just prior to early retirement eligibility and most likely to be
impacted by a change in retirement age--from 1998 to 2008 reported a
work-limiting health condition, and about two-thirds of those who work
report having a job that is physically demanding. Also, those workers
who might have more difficulty working to an older retirement age have
less education and lower household income than those who do not report
health limitations. Disability rates increase with age, suggesting
that workers postponing retirement would face increasing likelihood of
becoming disabled. Even healthy older workers may have trouble staying
in the labor force longer, as those that lose their jobs are less
likely than younger workers to get rehired.
* Raising the EEA or FRA could increase the number of applications to
and beneficiaries of DI and other assistance programs, as well as
change retirement benefits. Raising the EEA would postpone eligibility
for retirement benefits and could cause some older individuals with
work-limiting health conditions to apply for DI instead of waiting to
claim retirement. Raising the FRA reduces retirement benefits for
individuals who retire early, and could create a financial incentive
to apply for DI benefits, which are not reduced. A few researchers
have begun to study the effects of the prior increase in the FRA, and
two studies conclude that the increase has led to more DI
applications. SSA actuaries estimate that raising the FRA further
would increase the number of DI beneficiaries. With respect to the
OASDI trust funds, the actuaries project that raising the FRA would
improve solvency, but raising the EEA alone would worsen solvency.
[Footnote 6]
* Experts we interviewed indicated that modifications to the DI
program and policy changes that provide alternative income support for
low-income workers or employment support could help older workers who
are unable to work, do not qualify for DI benefits, and are unable to
receive enough support from existing programs. While existing programs
like unemployment insurance and workers' compensation could provide
some support for older workers, they are generally of limited duration
and not everyone may qualify. Some proposals to support older workers
include modifying the DI program, such as by allowing determinations
of "partial disability" similar to how the Veterans Administration
determines disability. According to SSA, however, this would be a
major change, and SSA would expend significant resources in making
such modifications to the DI program. Other proposals include options
for income support in the absence of DI, such as setting different
EEA's for workers based upon lifetime earnings, with lower earners
having an earlier eligibility age; however, this policy may not
specifically target workers who experience a disabling condition. In
addition, tax incentives for employers and workers to encourage
employment for older workers or those with disabilities--such as an
earned income tax credit for older workers with a disability--or early
intervention return-to-work support could keep some older workers in
the workforce and deter them from applying for DI benefits. However,
any proposal to mitigate the impacts of a higher retirement age would
increase benefit costs, either within DI or in other assistance
programs.
Raising the EEA would likely have larger effects than a comparable
rise in the FRA on retirement decisions, DI applications and awards,
and on vulnerable older workers because it would remove the age-62
early retirement option, as opposed to lowering benefits for all early
retirees. Changes in the retirement age could conceivably improve
retirement security for able-bodied workers if they cause them to work
longer and save more for retirement, but it could worsen security for
those unable to do so. In addition, an FRA increase by itself could
also hurt the retirement security if workers continue to retire at age
62 and do not have a clear understanding of the monthly benefit
reductions. While policy options exist to mitigate the impact on
affected workers, doing so will likely require expanding programs and
increase benefit costs. Finding the balance between worker protections
and costs will likely be challenging.
Agency Comments and Our Evaluation:
We provided a draft of this report to SSA for its review and comment.
They provided us technical comments, which we have incorporated as
appropriate.
We are sending copies of this report to relevant congressional
committees. In addition, this report will be available at no charge on
GAO's Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions about this report, please
contact me at (202) 512-7215 or bertonid@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff members who made key
contributions to this report are listed in appendix III.
Sincerely yours,
Signed by:
Daniel Bertoni:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Social Security Reform: Implications of Raising the
Retirement Ages:
Social Security Reform: Raising the Retirement Ages Would Have
Implications for Older Workers and SSA Disability Rolls:
Briefing for the Senate Special Committee on Aging:
October 21, 2010:
Introduction:
Long-term projected insolvency of the Social Security Old-Age
Survivors and Disability Insurance (OASDI) trust funds have prompted
proposed reforms to improve their long-term financial position.
* Improvements in life expectancy have led to proposals to raise the
earliest eligibility age (EEA) above 62, the full retirement age (FRA)
above 67, or both.
Raising the retirement ages could:
* encourage people to save more for retirement and reduce the years
those savings must last, and;
* improve the long-term financial position of the Old-Age and
Survivors Insurance (OASI, or retirement) program.
However, higher retirement ages could also:
* postpone or lower monthly benefits, creating financial hardship for
workers who cannot work longer; and;
* increase demand for Social Security Disability Insurance (DI)
and other benefits, eroding the financial savings to OASDI.
Objectives:
Given these concerns, we addressed the following research objectives:
(1) What do the health, occupational, and demographic characteristics
of those near retirement age indicate about the potential for these
individuals to continue working at older ages?
(2) What is known about the effect a change in Social Security's early
eligibility and full retirement ages would have on retirement and
disability benefits and applications for disability?
(3) What policy options might help mitigate the effects of increased
retirement ages on those who may not be able to work longer?
Scope and Methodology:
To address our objectives, we:
* conducted an analysis of older workers using the Health and
Retirement Study (HRS);
* reviewed selected studies of health, occupational, demographic, and
financial conditions of older workers;
* reviewed selected studies of the impact of changing the retirement
age;
* interviewed Social Security Administration (SSA) officials and
reviewed related agency data;
* interviewed experts on potential policy options that have been
proposed to mitigate the effects of raising the retirement ages on
older workers; and;
* reviewed relevant federal laws and regulations.
Background: OASDI Trust Fund:
Retirement and Disability Trust Funds Face Long-Term Deficit,
Prompting Proposals to Improve Solvency:
SSA estimates, as of 2010, that the gap between long-term OASDI
program outlays and revenues represents about 2 percent of Social
Security-taxable wages.
OASDI trust fund assets are projected to be exhausted by 2037.
In order to improve solvency, Social Security must increase revenues,
decrease costs, or some combination of the two.
* Raising the retirement ages is one of the options to reduce costs.
Other reform options to improve solvency that have been suggested
include adjusting benefit indexation, raising tax rates or the taxable
wage base, and altering tax treatment of benefits.
Background: Social Security Retirement Benefits:
Social Security Offers Discounted Retirement Benefits at the EEA:
Social Security pays retirement benefits to eligible workers, based on
work and earnings history.
Beneficiaries may choose to begin receiving benefits as early as their
EEA, age 62; however, the payments will be lower than if they chose to
wait until the FRA.[Footnote 7]
"Full" retirement benefits are available at the beneficiary's FRA.
Reforms in 1983 raised the FRA gradually from 65 to 67, depending on a
beneficiary's birth year, with the EEA remaining at 62 (see figure 1).
Monthly benefit amounts continue to rise for workers who delay
benefits beyond their FRA until age 70.
On average, a beneficiary has approximately the same expected lifetime
benefits irrespective of the age at which benefits begin.
Figure 1: Age-62 Retirement Benefits, as Percentage of FRA Benefits,
by Birth Year:
[Refer to PDF for image: line graph]
Birth year: 1932;
Percentage of FRA-benefit available at age 62: 80%.
Birth year: 1933;
Percentage of FRA-benefit available at age 62: 80%.
Birth year: 1934;
Percentage of FRA-benefit available at age 62: 80%.
Birth year: 1935;
Percentage of FRA-benefit available at age 62: 80%.
Birth year: 1936;
Percentage of FRA-benefit available at age 62: 80%.
Birth year: 1937;
Percentage of FRA-benefit available at age 62: 80%.
Birth year: 1938;
Percentage of FRA-benefit available at age 62: 79.167%.
Birth year: 1939;
Percentage of FRA-benefit available at age 62: 78.333%.
Birth year: 1940;
Percentage of FRA-benefit available at age 62: 77.5%.
Birth year: 1941;
Percentage of FRA-benefit available at age 62: 76.667%.
Birth year: 1942;
Percentage of FRA-benefit available at age 62: 75.833%.
Birth year: 1943;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1944;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1945;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1946;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1947;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1948;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1949;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1950;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1951;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1952;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1953;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1954;
Percentage of FRA-benefit available at age 62: 75%.
Birth year: 1955;
Percentage of FRA-benefit available at age 62: 74.167%.
Birth year: 1956;
Percentage of FRA-benefit available at age 62: 73.333%.
Birth year: 1957;
Percentage of FRA-benefit available at age 62: 72.5%.
Birth year: 1958;
Percentage of FRA-benefit available at age 62: 71.667%.
Birth year: 1959;
Percentage of FRA-benefit available at age 62: 70.833%.
Birth year: 1960;
Percentage of FRA-benefit available at age 62: 70%.
Birth year: 1961;
Percentage of FRA-benefit available at age 62: 70%.
Birth year: 1962;
Percentage of FRA-benefit available at age 62: 70%.
Birth year: 1963;
Percentage of FRA-benefit available at age 62: 70%.
Birth year: 1964;
Percentage of FRA-benefit available at age 62: 70%.
Birth year: 1965;
Percentage of FRA-benefit available at age 62: 70%.
Source: Office of the Chief Actuary, Social Security Administration.
[End of figure]
Background: DI Benefits:
DI Benefits Use Similar Formula as Retirement Benefits:
Social Security pays cash benefits to workers with sufficient recent
work history and who are unable to work because of a medical condition
that meets Social Security's definition of disability.
OASI and DI use a common benefit formula, but unlike retirement
benefits, DI benefits are not discounted for beneficiaries younger
than their FRA.[Footnote 8]
Social Security also offers Supplemental Security Income (SSI), which
pays cash benefits to the aged, blind, and persons with disabilities
with little or no income or assets, regardless of work history.
SSI is funded by general tax revenues, not through the OASDI trust
funds.
Background: DI Eligibility:
DI Eligibility Determination:
To be eligible, workers need a certain amount of lifetime credits,
depending on age, with 20 credits in the previous 10 years.[Footnote 9]
According to SSA, an individual has a disability if:
* the condition precludes the applicant from performing substantial
gainful employment,
* the condition precludes the applicant from performing the work the
applicant performed in the past,
* the condition precludes the applicant from adjusting to other work
in the national economy, and,
* the condition has lasted, or is expected to last, for at least one
year, or has resulted in death (see figure 2).
SSA uses medical-vocational guidelines, which factor age, residual
functional capacity, education and work-history to determine if an
individual can adjust to other work as part of the fifth step in the
initial determination process (see figure 2).
DI beneficiaries have a 5-month waiting period before receiving
benefits after they qualify to receive disability. The average monthly
benefit for DI beneficiaries ages 60-64 in 2009 was $1,199.
Background: DI Initial Disability Determination Process:
Figure 2: SSA Uses a Five Step Process for Initial Determination of
Disability:
[Refer to PDF for image: illustration]
Step 1: Work test:
Is the claimant working and earning more than substantial gainful
activity?[A]
Yes: Benefits denied;
No: Continue.
Step 2: Severity test:
Does the claimant have a severe impairment that significantly limits
his or her ability to do basic work activities and that also meets the
duration requirements?
Yes: Benefits denied;
No: Continue.
Step 3: Medical listings test:
Does the condition meet SSA's medical listings, or is the condition
equal in severity to one found on the medical listings?
Yes: Benefits awarded;
No: Continue.
Step 4: Previous work test:
Can a person with the claimant's residual functional capacity perform
any of the claimant's past work?
Yes: Benefits denied;
No: Continue.
Step 5: Any work test:
Can the claimant perform other types of work that exist in the
national economy?
No: Benefits denied;
Yes: Benefits awarded.
Source: GAO analysis of SSA data.
[A] In 2010 the substantial gainful activity threshold was $1,640 per
month for blind recipients and $1,000 per month for individuals with
other disabilities.
[End of figure]
Background: DI Population of Older Workers:
While Older Workers Make Up a Small Percentage of Overall Applicants,
They Have a Higher Approval Rate:
In 2008-2009, workers aged 60 and older made up 22 percent of the DI
applicants and 29 percent of the initial approvals.[Footnote 10] This
is because older workers had an initial approval rate of 66 percent
versus 44 percent for the population younger than 60.
63 percent of workers aged 60 and older in 2008-2009 received an
initial determination of disability using the medical vocational
guidelines.
In 2008-2009, 31 percent of workers 60 and older were initially
determined to be DI-eligible for musculoskeletal conditions, while a
disability determination due to tumors was the second most common at
18 percent.
Background: SSA Disability Caseload:
SSA Continues to Face a Disability Claims Backlog:
SSA has experienced processing delays and an increase in the total
number of claims pending at the initial level of the disability
determination process.[Footnote 11]
* In FY 2009, the average processing time for claims at the initial
level was 101 days — an improvement over FY 2008 (106 days), but an
increase from FY 2006 (89 days).
* At the end of FY 2009, there were about 780,000 initial claims
pending, a 40 percent increase from FY 2007.
Although SSA has made progress in reducing its backlog at the hearings
level, as of 2008 the average processing time for claims at this level
was 514 days.
Objective 1: Most Workers Are Likely Able to Work Longer, but Many
Would Face Health Obstacles:
Improvements in health, workplace conditions, and longevity may allow
most people to work longer, but many workers have not shared in these
gains.
Economically vulnerable workers are more likely to have health
challenges that will make working longer difficult.
While labor force participation among older workers continues to grow,
even older workers who are physically able to work longer may be
unable to find jobs.
General Health and Work Condition Gains Have Improved Potential for
Working Longer, but Gains Have Not Been Distributed Equally:
According to the Centers for Disease Control and Prevention, average
life expectancy at age 65, as of 2006, was 18.5 years, 3.3 years
higher than in 1970.
* However, from 1970-2006 life expectancy for 65-year old African-
American males improved 2.6 years versus 4.0 years for white males.
* Over that period age-65 male life expectancy increased 3.9 years vs.
2.7 years for women, but age-65 women's life expectancy remains 2.7
years longer.
According to two Urban Institute reports, fewer Americans are working
physically demanding jobs while older adult health has
improved.[Footnote 12]
* From 1971 to 2006 the percentage of American workers holding
physically demanding jobs fell from 57 to 46 percent, and the share of
workers in blue-collar jobs from 36 to 24 percent.
* Between 1983 and 2007 the percentage of 55-64 year olds reporting
poor or fair dropped from 25 to 19 percent.
- However, all of these health gains occurred before 1998.
Objective 1: Health Key to Retirement Decision:
Health Is a Key Factor in Retirement Decision for Many Workers:
U.S. Census Bureau reported that almost one-third of people age 55-64
who were not working in 2004 cited chronic illness or disability as
the main reason.
According to the Employee Benefit Research Institute's 2010 Retirement
Confidence Survey, 41 percent of retirees leave the workforce earlier
than planned, and among these 54 percent did so for health or
disability reasons.
The Center for Retirement Research at Boston College reported that 29
percent of all men who claim Social Security retirement benefits at 62
report being in poor or fair health, whereas only 12 percent of men
who claim at a later age report poor or fair health.[Footnote 13]
Objective 1: Challenges Facing Older Workers:
Many Preretirement Age Workers Still Face Health and Physical
Challenges to Working Longer:
According to GAO analysis of the Health and Retirement Study (HRS),
among adults who were 60-61 years old from 1998 to 2008:
* 57.9 percent were working for pay, 42.4 percent full time.
* 25.6 percent reported being in fair or poor health.
* 27.7 percent reported that their health limited their ability to
work.
* 63.6 percent of those working had a job that was physically
demanding at least some of the time.
- However, only 6.4 percent with a physically demanding job also
reported fair or poor health.
Preretirement blacks and Hispanics were much more likely than whites
to report fair or poor health, to have a work-limiting health
condition, or to have applied for DI or SSI (see table 1).
Objective 1: HRS Summary Statistics:
Table 1: Minority Older Workers More Likely to Face Health Challenges:
Percentage of adults:
White Non-Hispanic:
Work physically demanding job: 36.4% of adults;
In fair or poor health: 20.0% of adults;
With a work-limiting condition: 25.1% of adults;
Applied for DI or SSI: 13.0% of adults.
Black:
Work physically demanding job: 37.8% of adults;
In fair or poor health: 38.1% of adults;
With a work-limiting condition: 36.5% of adults;
Applied for DI or SSI: 28.0% of adults.
Hispanic:
Work physically demanding job: 38.4% of adults;
In fair or poor health: 47.5% of adults;
With a work-limiting condition: 31.5% of adults;
Applied for DI or SSI: 20.9% of adults.
Source: GAO analysis of Health and Retirement Study, all 60-61 year
old respondents interviewed from 1998 to 2008.
[End of table]
Objective 1: Challenges Facing Older Workers:
Older Workers With Health Problems May Be More Economically Vulnerable:
Among 60-61 year olds, those reporting good or excellent health,
compared to those reporting fair or poor health (see table 2):
* Were more than twice as likely to have some college education;
* Were about twice as likely to be working overall and working full
time;
* Had more than twice the household income and almost 4 times the
wealth;
* Were more likely to have a pension at their current job.
Similarly, those reporting no work-limiting health limitation showed
similar advantages compared to those with a limitation.
Table 2: Key Descriptive Statistics, Age 60-61 Adults, 1998-2008:
With at least some college:
All age 60-61: 42.2%;
In fair or poor health: 23.4%;
In good or excellent health: 48.6%;
With a work-limiting health condition: 29.1%;
With no work-limiting condition: 47.1%.
Working:
All age 60-61: 57.9%;
In fair or poor health: 34.8%;
In good or excellent health: 65.8%;
With a work-limiting health condition: 21.0%;
With no work-limiting condition: 71.9%.
Working full time:
All age 60-61: 42.4%;
In fair or poor health: 23.7%;
In good or excellent health: 48.9%;
With a work-limiting health condition: 11.3%;
With no work-limiting condition: 54.3%.
Median household income (2008 dollars):
All age 60-61: $52,684;
In fair or poor health: $27,696;
In good or excellent health: $62,923;
With a work-limiting health condition: $28,992;
With no work-limiting condition: $62,473.
Median household wealth (2008 dollars):
All age 60-61: $184,355;
In fair or poor health: $63,048;
In good or excellent health: $249,550;
With a work-limiting health condition: $89,207;
With no work-limiting condition: $232,071.
With pension at current job:
All age 60-61: 52.8%;
In fair or poor health: 44.4%;
In good or excellent health: 54.4%;
With a work-limiting health condition: 37.9%;
With no work-limiting condition: 54.5%.
Total in sample:
All age 60-61: 6,944;
In fair or poor health: 1,777;
In good or excellent health: 5,163;
With a work-limiting health condition: 1,913;
With no work-limiting condition: 5,031.
Source: GAO analysis of Health and Retirement Study, all 60-61 year
old respondents interviewed from 1998 to 2008.
[End of table]
Objective 1: Disability Rates:
Disability Incidence Higher among Older Workers and Economically
Vulnerable:
Disability rates increase with age, suggesting that workers postponing
retirement would face increasing likelihood of having a disability.
* According to SSA, average annual DI incidence from 2000-09 was 9.4
for age 50-54, 14.8 for age 55-59, and 17.2 for 60-64 year
olds.[Footnote 14]
An Urban Institute study found that the disability rate roughly
doubles as a cohort ages from age 55 to 64.[Footnote 15]
* Between 1992 and 2006, about 43 percent of adults reported a
disability by age 64;
* Certain subpopulations have higher rates by age 64 (see figure 3):
- 58.0 percent of African Americans and 53.1 percent of Hispanics,
- 61.3 percent of those not graduating from high school, and,
- 67.7 percent of lowest income quartile in 1991.
Figure 3: Percentage of Adults Reporting a Disability by Age 64, 1992-
2006:
[Refer to PDF for image: horizontal bar graph]
Subpopulation: All adults: 42.7%;
Subpopulation: African Americans: 58.0%;
Subpopulation: Hispanics: 53.1%;
Subpopulation: Did not graduate from high school: 61.3%;
Subpopulation: Lowest income quartile: 67.7%.
Source: Richard W. Johnson, Melissa M. Favreault, and Corina
Mommaerts. "Work Ability and the Social Insurance Safety Net in the
Years Prior to Retirement," (Wash. D.C.: Urban Institute, The
Retirement Policy Program Discussion Paper 10-01, January 2010.)
[End of figure]
Objective 1: Labor Force Participation:
Figure 4: Older Workers Are Increasingly Likely to Be in the Labor
Force:
[Refer to PDF for image: line graph]
Percent of 65 and older population in labor force:
Year: 1984: 11.1%.
Year: 1985: 10.8%.
Year: 1986: 10.9%.
Year: 1987: 11.1%.
Year: 1988: 11.5%.
Year: 1989: 11.5%.
Year: 1990: 11.8%.
Year: 1991: 11.8%.
Year: 1992: 11.5%.
Year: 1993: 11.5%.
Year: 1994: 11.2%.
Year: 1995: 12.4%.
Year: 1996: 12.1%.
Year: 1997: 12.2%.
Year: 1998: 11.9%.
Year: 1999: 12.3%.
Year: 2000: 12.9%.
Year: 2001: 13%.
Year: 2002: 13.2%.
Year: 2003: 14%.
Year: 2004: 14.4%.
Year: 2005: 15.1%.
Year: 2006: 15.4%.
Year: 2007: 16%.
Source, Bureau of Labor Statistics, "Spotlight on Statistics: Older
Workers," July 2008.
[End of figure]
Older Workers Are Increasingly Likely to Be in the Labor Force and
Older Workers are Projected to Make Up an Increasing Share of the
Labor Force:
Table 3: Projected Percentage Change in Labor Force, By Age, 2006-16:
Age: 75 and older;
Percent change 2006-16: 84.3%.
Age: 65 to 74;
Percent change 2006-16: 83.4%.
Age: 55 to 64;
Percent change 2006-16: 36.5%.
Age: 25 to 54;
Percent change 2006-16: 2.4%.
Age: 16 to 24;
Percent change 2006-16: -6.9%.
Source: Bureau of Labor Statistics, "Spotlight on Statistics: Older
Workers," July 2008.
[End of table]
Objective 1: Challenges Facing All Older Workers:
But Even for Healthy and Willing Older Workers, Labor Market May Not
Accommodate Them:
While workers over age 55 are less likely than younger workers to lose
a job, when they do they are less likely than younger workers to find
other employment.
* A 2001 GAO report used data from the 2000 Displaced Worker Survey to
show that 9 percent of older workers lost their jobs from 1997 to
1999, a rate that is less than the 11 percent of younger workers who
lost their jobs over the same period of time.
* However, 57 percent of older workers who lose their jobs retire,
partially or fully, following a job loss.
Similarly, an Urban Institute study using 1996, 2001, and 2004 Survey
of Income and Program Participation data finds that older workers are
less likely to lose their jobs, but those that do remain unemployed
longer.[Footnote 16]
Objective 1: Many Potentially Affected:
Many Workers Potentially Affected Each Year by a Higher EEA:
As of December 2008, about 2.8 million 62-64 year olds were receiving
Social Security retirement benefits.
* If a rise in the EEA delayed eligibility for retirement benefits
until age 65, 62-64 year olds would have to wait for retirement
benefits, with some being unable to work longer.
* Among these, many would not qualify for DI benefits, making them
more financially vulnerable.
[End of Objective 1]
Objective 2:
Raising the Retirement Ages Would Change Retirement Benefits and Could
Increase DI Applications and Costs:
Raising the EEA delays eligibility for retirement, and may cause
workers to apply for DI benefits instead of working longer.
Raising the FRA reduces benefits for early retirees, creating a
financial incentive to apply for DI over retirement benefits.
SSA actuaries project that raising either retirement age would
increase DI incidence rates. They estimate that raising the EEA would
worsen the OASDI deficit, while raising the FRA would improve it.
[Footnote 17]
Objective 2: Raising the EEA:
Raising the EEA Could Cause Workers to Delay Retirement and Induce
Those with Health Problems to Apply for DI:
Raising the EEA may increase the number of DI applications and awards
among workers with health problems or physically demanding jobs.
* If the EEA were raised, workers would no longer have the option of
claiming early retirement benefits at age 62.
- Many able-bodied individuals are likely to work until the new EEA,
thus possibly saving more and receiving higher monthly benefits, which
may improve their retirement security.
- Workers with health problems may face challenges: they may not be
able to continue working, and they may lack the financial resources
needed to exit the labor force without retirement benefits.
-- For financial support, these workers might apply for DI, which is
available to eligible individuals who must stop working before they
reach the EEA.
-- Workers who cannot work and do not qualify for DI are likely to
face financial hardship.[Footnote 18]
Raising the EEA would have a negative impact on OASDI solvency because
DI costs would rise and expected total lifetime retirement benefits
would not change.
Objective 2: Raising the FRA:
Raising the FRA Would Reduce Retirement Benefits, and Could Encourage
More to Apply for DI Benefits, Which Are Not Reduced:
Raising the FRA would reduce monthly and expected lifetime benefits
for all pre-FRA retirees, compared to current program rules.
* If the EEA were unchanged, workers would retain the option of
claiming early benefits starting at age 62.
- It is unclear to what extent raising the FRA would induce able-
bodied individuals to delay retirement; workers who do not work longer
could face lowered monthly benefits throughout retirement.
By lowering monthly retirement benefits, raising the FRA would
increase the relative generosity of DI benefits—which are unreduced—
providing additional incentive for eligible workers to apply for DI
instead of retirement (see figure 5).
The effect of raising the FRA on DI applications also depends on the
degree to which individuals are deterred by the lengthy DI
determination process or the uncertainty of receiving benefits.
[Footnote 19]
Objective 2: Raising the Retirement Ages:
Figure 5: Examples of DI and Retirement Benefits at Different Ages
under Different EEA and FRA (PIA = $1,000/month at FRA):
[Refer to PDF for image: 3 vertical bar graphs]
Monthly benefit amount:
EEA=62, FRA=67:
Age at which DI or retirement benefits are claimed:
62: $700;
63: $750;
64: $800;
65: $867;
66: $933;
67: $1000.
EEA=62, FRA=70:
Age at which DI or retirement benefits are claimed:
62: $550;
63: $600;
64: $650;
65: $700;
66: $750;
67: $800;
68: $866;
69: $933;
70: $1000.
EEA=65, FRA=70:
Age at which DI or retirement benefits are claimed:
62: N/A;
63: N/A;
64: N/A;
65: $700;
66: $750;
67: $800;
68: $867;
69: $933;
70: $1000.
Source: GAO example using SSA benefit formulas. PIA is the OASI
primary insurance amount available to an individual at FRA.
[End of figure]
Objective 2: Raising the FRA:
A Few Studies Conclude that the Prior Increase in the FRA Has Led to
More DI Applications:
The 1983 Social Security reforms began raising the FRA for individuals
retiring in 2000, and a few researchers have begun studying the
effects of this increase on DI applications:[Footnote 20]
* Duggan, Singleton, and Song find that raising the FRA led to a small—
but statistically significant—increase in DI enrollment: an additional
0.6 percent of men and 0.9 percent of women between ages 45 and 64
received DI benefits in 2005 as a result of the changes.
* Li and Maestas conclude that an average 4-month increase in the FRA
slightly increases the 2-year DI application rate by 0.04-0.30
percentage points. The effect is greater among those with a work-
limiting health problem (0.22-0.89 percentage points).
A rising number of DI applications could also increase SSA's workload
and the number of pending claims at all levels of the disability
determination process.
Objective 2: Disability Incidence Projections:
SSA Actuaries Project that Raising the Retirement Ages Would Result in
Higher Disability Incidence Rates:
Table 4: Assumed Disability Incidence Rates (per 1,000) During Year
2050 for Various Retirement Age Scenarios:[Footnote 21]
DI Incidence Rates:[Footnote 22]
Policy: Current law (FRA-67; EEA=62);
Age 62 Men: 22.45;
Age 62 Women: 16.26;
Age 64 Men: 16.19;
Age 64 Women: 11.84.
Policy: Raise only the FRA (FRA-68; EEA=62);
Age 62 Men: 23.34;
Age 62 Women: 17.11;
Age 64 Men: 22.28;
Age 64 Women: 16.43.
Policy: Raise both the FRA and the EEA (FRA=68; EEA=65);
Age 62 Men: 24.23;
Age 62 Women: 17.95;
Age 64 Men: 28.37;
Age 64 Women: 21.01.
Source: Social Security Administration Memorandum, August 31, 2010.
[End of table]
Objective 2: Trust Fund Projections:
SSA Actuaries Project that Raising the EEA Could Worsen OASDI Trust
Fund Solvency, but Raising or Accelerating the FRA Could Improve
Solvency:
Table 5: Estimated Effects of Raising the Retirement Ages on OASDI
Solvency over 75 Years:[A]
Policy change: Raise the EEA gradually from age 62 to 65;
Long-Range OASDI Actuarial Deficit (percent of taxable payroll:[B]
Increase by 0.03%.
Policy change: Raise the FRA by one month (for those turning 62 in
every even-numbered year after 2022)[C];
Long-Range OASDI Actuarial Deficit (percent of taxable payroll:[B]
Decrease by 0.40%.
Policy change: Raise the FRA from 66 to 67 one year earlier than
current law (for those turning 62 between 2016 and 2021)[D];
Long-Range OASDI Actuarial Deficit (percent of taxable payroll:[B]
Decrease by 0.41%.
Source: Social Security Administration.
[A] A1l estimates are based on the Intermediate Assumptions of SSA's
2009 Trustees Report. For more policy changes and the projected
effects on OASDI, see SSA's Office of the Chief Actuary Web site:
www.ssa.gov/oact.
[B] The actuaries project that the impact on the OASDI trust funds
would range from negative 0.03 percent of taxable payroll to 0.62
percent, depending on whether the EEA, FRA, or both are raised; the
magnitude and speed of the increase; and how workers alter their
retirement behavior.
[C] In this proposal, benefits would be indexed to longevity after the
FRA reaches age 67 under current law, which occurs for individuals who
turn 62 in 2022 and later.
[D] After 2021, the FRA would be indexed to maintain a constant ratio
of expected retirement years (life expectancy at the FRA) to potential
work years (FRA minus 20).
[End of Objective 2]
Objective 3:
Objective 3: Policies to Alter Disability Program, Provide Alternative
Income Support, and Encourage Staying in Workforce Could Mitigate
Impact of Retirement Age Changes:
Older workers may qualify for other assistance programs and services,
but some will not receive any support.
DI program modifications could increase eligibility for older workers.
Other policy options would provide alternative income support for low
income workers and encourage employment.
Objective 3: Policy Options:
Policy Options:
This objective describes possible policy options that could mitigate
the effects increasing the retirement age could have on older workers
who might not be able to work longer.
All of the policy options discussed in this section came out of
interviews with experts and reviews of the literature. The listed
policy options are not intended to be exhaustive, and GAO did not
assess them and does not necessarily recommend their implementation.
Each of these proposed options seeks either to expand already existing
programs or create new programs to address individuals affected by an
increase in the EEA or FRA and, as such, would increase the costs of
providing benefits.
Objective 3: Existing Assistance Programs:
Table 6: Older Workers, Prior to Retiring, May Qualify for Other
Programs and Services, But Some Will Not Receive Any Support:
Program: Unemployment insurance;
Description: Temporary financial assistance to unemployed workers;
Limitation: Limited benefit duration and some may not meet the
eligibility requirements.
Program: State short-term disability insurance:
Description: Time limited partial income replacement for individuals
who are unable to work due to disability;
Limitation: Limited benefit duration and few states provide short-term
disability coverage.[A]
Program: State workers' compensation;
Description: Partial income replacement and medical coverage for
individuals who sustain work related injury or illness;
Limitation: Provides supports only for individuals whose injuries or
illnesses are job-related.
Program: Department of Labor's Workforce Investment Act (WIA) One-Stop
Career Centers;
Description: Provides employment assistance, including to
individuals with disabilities. Some centers have disability program
navigators who provide support to other WIA staff working with
individuals with disabilities and who work to improve links with
employers;
Limitation: Funding for disability program navigators ended after
federal fiscal year 2009, and concerns exist about individuals with
disabilities access to WIA services.
Program: Supplemental Nutrition Assistance Program (SNAP) and
Description: Department of Housing and Urban Development (HUD) Rental
Assistance;
Limitation: SNAP subsidizes food purchases. HUD Rental Assistance
provides public housing, subsidized housing or rental vouchers;
For low income households, the elderly and the disabled.[B]
Source: Review of literature and prior GAO work.
[A] According to the Congressional Research Service, Leave Benefits in
the United States, RL34088 (2009),five states—California, Hawaii,
New Jersey, New York, and Rhode Island—and Puerto Rico have mandated
short-term disability coverage for qualifying individuals. California
and Rhode Island do not require employer contributions; Hawaii, New
Jersey, and New York do.
[B] For SNAP in 2009, households may have $2,000 in countable
resources, $3,000 if at least one person is 60 or older. For HUD, income
is used to determine eligibility, which varies by location.
[End of table]
Objective 3: DI Program Modification:
Favoring Older Applicants More in the Medical Determination Process
and Adjusting the DI Lifetime Work Credits Requirement Could Increase
Eligibility for Older Workers:
Make age an even more important factor in the DI determination process
by putting more weight on the category in the medical-vocational
guidelines.
* This could increase the number of older workers who are determined
to be disabled.
* The vocational factors already put weight on age.
Loosen the DI lifetime work credits requirement to make more older
workers eligible to apply for DI.
* This could increase the number of older workers able to apply for DI
if their irregular work history, possibly as a result of their
disability, makes them ineligible.
Note: GAO has not assessed these options and does not necessarily
recommend their implementation.
Objective 3: DI Program Modification:
Emulating Department of Veterans Affairs (VA) Disability Procedures
Could Allow for Partial Disability Determinations, but Could Also
Expand the DI Pool to Individuals Who Aren't Neediest:
VA assigns a percentage rating for the applicant's disability to allow
for a "partial disability" Multiple disabilities receive a composite
rating. In addition, there is no work test to receive benefits,
meaning that VA disability recipients may continue working while
receiving disability payments.
* Altering DI to use VA's method of determining disability would allow
DI to offer a portion of the benefit instead of needing to make an
"all or nothing" determination.[Footnote 23]
* As individuals could continue working under the VA model, this might
encourage more individuals to apply for disability beyond those who
might have the greatest need.
Note: GAO has not assessed this option and does not necessarily
recommend its implementation.
Objective 3: Other Policy Options:
Lowering the SSI Aged Eligibility Age, in Response to a Higher EEA,
Could Help Low-Income Older Workers Who Are Unable to Retire:
Lower the SSI eligibility for aged beneficiaries from 65 to 62.
* Lowering the SSI aged eligibility age would provide benefits for
lower income older workers who are unable to retire if the EEA were
raised above 62, but who would not be eligible for DI.
* However, given the low asset levels for eligibility ($2,000 for
individuals and $3,000 for couples in 2010), lowering the age might
not affect many older workers.
Note: GAO has not assessed this option and does not necessarily
recommend its implementation.
Objective 3: Other Policy Options:
Implementing an "Elastic" EEA Could Help Low-Income Workers;
However, the Proposal May Not Target Those Workers in Need:
An elastic EEA would assign different EEA's to individuals based on
each person's average indexed monthly earnings (AIME) at the age of 55
as compared to the national average: those with lower AIME's would
have lower EEA's.[Footnote 24]
* This would allow lower-income workers, who are more likely to have
lower life expectancy and lower savings, access to earlier retirement
benefits.
* By focusing on workers with low AIME's, regardless of the cause, the
proposal does not specifically target workers with a disability or a
physical inability to work at older age. The elastic EEA also would
not capture workers who experience a drop in AIME after the age of 55.
Note: GAO has not assessed this option and does not necessarily
recommend its implementation.
Objective 3: Other Policy Options:
Allowing Workers with Sufficient Labor Force Participation to Retire
Earlier Could Help Individuals At-Risk for Health Problems:
Allow workers with longer workforce history, set at 35 years of labor
force participation, to retire at age 62 while the regular EEA is set
at later ages.
* Setting a lower EEA for those with a long workforce history, which
would cover those workers who began physically demanding work at
younger ages, might permit individuals who need to retire to do so
while encouraging the rest of the labor force to work longer.
* Those individuals with health problems may not be able to work long
enough to claim the earlier benefit.
Note: GAO has not assessed this option and does not necessarily
recommend its implementation.
Objective 3: Other Policy Options:
Changing Tax Policy Could Encourage Disabled Older Workers to Remain
in the Workforce Rather Than Apply for DI:
Eliminate Social Security and Medicare taxes for older workers and/or
establish an earned income tax credit for older workers with a
disability who remain in the workforce.
* This makes older workers less expensive for employers and encourages
work since older workers keep more of their income.
* However, this does not address those who may not be able to continue
working.
Experience rate payroll tax rates for employers based upon how many
employees claim DI, similar to workers' compensation program.
* This could encourage employers to accommodate older workers to keep
them on the job.
* However, this would penalize employers for disabilities that do not
result from the workplace and it might discourage employing older
workers.
Note: GAO has not assessed these options and does not necessarily
recommend their implementation.
Objective 3: Other Policy Options:
Return-to-Work Support and Employer Accommodation Could Reduce or
Eliminate Time Spent on Disability; However, the Proposals Could Be
Ineffective or Create Disincentives for Hiring:
Offer return-to-work support early in the disability application
process.
* Return-to-work programs may be more effective if the intervention
with the disabled worker occurs early, while the individuals have a
strong attachment to working and may also have a continuing
relationship with an employer.
* However, return-to-work programs might be less effective for older
workers with less education who have previously done physical labor.
Require employers to accommodate older workers, such as through
flexible scheduling of work hours or changing duties.
* This could help older workers who are already employed remain on
their jobs.
* However, employers may not choose to hire older workers since the
employer risks needing to make accommodations.
Note: GAO has not assessed these options and does not necessarily
recommend their implementation.
Objective 3: Proposed Policy with Multiple Components:
The Proposed Employment Support for the Transition to Retirement
(ESTR) Program Offers an Example of a Policy Proposal with Multiple
Components:
ESTR is a set of supports designed to help older workers increase
their earnings and postpone the need for retirement benefits.[Footnote
25]
ESTR can cover individuals who experience an involuntary earnings loss
due to a long term medical condition, those who experience a change in
the local labor market, or those whose care for a dependent or family
member is incompatible with the worker's present job. ESTR includes
the following components:
* Disability screenings and expedited DI for participants in ESTR;
* Subsidies/allowances for extraordinary work-related expenses;
* Extended unemployment benefits;
* Eligible for SSI and Medicaid under current rules;
* Counseling for employment and to develop an economic security plan;
* Health risk reduction services;
* Health insurance subsidy;
* Wage subsidy to replace lost earnings.
Note: GAO has not assessed this option and does not necessarily
recommend its implementation.
Objective 3: Example of Proposed Policy:
The Proposed Employment Support for the Transition to
Retirement (ESTR) Program Offers a Reform Example for Older Workers if
the EEA or FRA Is Raised (continued):
The costs and benefits of the program will vary depending upon the
scope and specifics of the implementation.
ESTR reflects the change in disability policy towards programs which
encourage work from individuals with disabilities. In addition, the
program could reduce Medicare costs by avoiding increases in DI
participation.
However, the Medicare savings would be low relative to the costs of
ESTR, but it is unclear if the revenue gains from ESTR would offset
the costs of the program compared to other reform options.
[End of Objective 3]
Concluding Observations:
Raising the EEA would likely have a larger effect on retirement, DI
applications, and on vulnerable older workers than raising the FRA by
a comparable amount because 62 year olds would no longer be able to
receive retirement benefits.
* An FRA increase by itself could also hurt retirement security by
reducing monthly benefits, especially if people continue to retire at
the same EEA and do not have a clear understanding of these reductions.
Retirement age changes could benefit able-bodied adults if they delay
retirement, and doing so causes them to save more and receive higher
monthly Social Security retirement benefits, but could worsen
retirement income security for a large minority of workers absent
mitigating measures.
The impact of raising the retirement age on trust funds and on workers
depends on when changes were implemented, the magnitude of the change,
and on trends in health and workplace demands.
Options exist to mitigate these impacts, but balancing the need for
retirement income security with added costs of the mitigation efforts
will be challenging.
[End of section]
Appendix II: Summary of Studies Assessing the Effects of Raising the
Retirement Age:
Effects on claiming disability and retirement benefits:
Authors, study, and date (in chronological order): Leonesio, Vaughan,
and Wixon: "Early Retirees Under Social Security: Health Status and
Economic Resources" (2000);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* In the context of raising the EEA, assess the extent to which poor
health limits work among OASI beneficiaries aged 62-64, and the extent
to which curtailment of early OASI benefits might increase DI rolls;
* 1990 Survey of Income and Program Participation (SIPP) and Social
Security Administration (SSA) data;
* Use health and disability measures to assess different levels of
impairment severity and impact on work. After distinguishing between
healthy individuals and those with one or more health problems,
subdivide those with health problems into three categories: two
categories use modified versions of Census Bureau measures and the
third uses a statistical model developed by SSA to classify people
with impairments that meet SSA's definition of disability;
Key results and implications: Effects on claiming disability and
retirement benefits:
* The option to retire early helps not only people in good health and
those with less severe impairments, but also a substantial number of
people with the most severe impairments;
* More than 20% of OASI beneficiaries aged 62-64 have health problems
that substantially impair their ability to work. In this age range,
there were as many people with severe disabilities who receive OASI
benefits as DI. In this way, OASI functions as a substantial, but
unofficial, disability program for this age group;
* However, because only about 12% of beneficiaries who retired early
would meet SSA's medical standard for disability benefits, raising the
EEA would have only a modest impact on DI enrollment. The DI program--
as currently structured--would not serve as a safety net for many of
the most severely disabled early beneficiaries if the EEA were raised,
as many would not qualify for DI if they lost their retirement
benefits.
Authors, study, and date (in chronological order): Mitchell and
Phillips: "Retirement Responses to Early Social Security Benefit
Reductions" (2000);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Examine who would be affected by reductions in early Social Security
benefits and what changes workers might make in their retirement based
on this altered policy;
* Health and Retirement Study (HRS) data that is linked to Social
Security records (excluding respondents who were never insured for DI
and retirement benefits over the relevant period);
* Policy experiment using information from older workers to estimate
the potential effects of benefit reductions on retirement options.
Study years between 1992 and 1998, examining people ages 57-61 at
baseline in 1992 (and 64-67 in 1998) who have matched Social Security
earnings and benefits data and who were not receiving a benefit from
Social Security. Study which of three paths respondents took at
retirement: (1) disability retirement prior to age 65, (2) early
retirement between ages 62-64, or (3) full retirement at or after age
65;
Key results and implications: Effects on claiming disability and
retirement benefits:
* Early Social Security benefit cuts would have relatively small
effects on the likelihood of early retirement. Such cuts would induce
more workers to delay retirement benefits rather than opt for
disability retirement;
* A hypothetical reduction of $25,000 in early retirement benefits
would be expected to cause (1) fewer workers to elect early
retirement, and (2) more workers to elect disability and full
retirement. Of the latter group, more than twice as many would choose
full retirement than disability retirement;
* If early retirement benefits were eliminated, workers would be three
times more likely to opt for full retirement than disability
retirement;
* Under these scenarios, workers who elect disability instead of full
retirement are more likely to be in poor health, reflecting the fact
that they are more likely to be medically eligible for disability
benefits.
Authors, study, and date (in chronological order): Duggan, Singleton,
and Song: "Aching To Retire? The Rise in the Full Retirement Age and
Its Impact on the Social Security Disability Rolls" (2007);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Investigate whether and to what extent the 1983 Amendments'
reduction in Social Security retired worker benefits contributed to
the increase in DI enrollment;
* Aggregate data on DI enrollment rates by age, gender, and year-of-
birth in each year from 1983 to 2005;
* Restrict attention to individuals between the ages of 45-64. Examine
variation by cohort and by age in the change in the present value of
retired worker benefits. Estimate first difference models that control
for age-specific trends in DI enrollment and for common changes in
each year in DI enrollment;
Key results and implications: Effects on claiming disability and
retirement benefits:
* The Amendments significantly increased DI enrollment since 1983. An
estimated additional 0.6% of men and 0.9 percent of women between the
ages of 45-64 received DI benefits in 2005 as a result of the changes;
* The Amendments can explain more than one-third of the increase in DI
enrollment among men and more than one-fourth of the increase among
women ages 45-64 since 1983;
* The number of nonelderly individuals receiving DI was 568,000
greater in late 2005 than it would have been in the absence of the
Amendments, representing 8.7% of all DI enrollment in that year;
* Because the reductions in retirement benefits have not yet been
fully phased in, the long-run effect on DI enrollment in 2024 and
subsequent years--when those ages 45-64 would have an FRA of 67 and an
early retirement penalty of 30%--will be almost twice as large.
Authors, study, and date (in chronological order): Song and
Manchester: "Have People Delayed Claiming Retirement Benefits?
Responses to Changes in Social Security Rules" (2007);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Examine changes in the age at which people claim retirement benefits
in response to (1) the gradual increase in the FRA for people born in
or after 1938, and (2) the removal of the retirement earnings test at
ages 65-69 in 2000;
* 1% sample of SSA administrative data for 1997-2005;
* Use a quasi-experimental approach that compares benefit entitlement
probabilities and entitlement hazards (or the probability that those
who have not yet claimed benefits will do so during the specified
period) before and after the rule changes, holding age constant.
Analyze three treatment groups: one that is affected only by the
earnings test rule change, one that is affected by both changes, and
one that is affected only by the increase in the FRA;
Key results and implications: Effects on claiming disability and
retirement benefits:
* Specific results for cohorts of different ages are included in the
article;
* Significant responses occur in the age at entitlement around the
time that the rule changes come into effect.
Key findings include:
* The response to the gradual increase in the FRA occurs not only
among those who are close to the FRA, but also among those who are
close to the EEA;
* The largest effect of the earnings test rule change in 2000 occurs
at age 65. At 65, the rate of benefit entitlement increases by more
than 5 percentage points among men and 3 points among women;
* The removal of the earnings test significantly increases the benefit
entitlement hazard by more than 20% for those turning the FRA.
Authors, study, and date (in chronological order): Li and Maestas:
"Does the Rise in the Full Retirement Age Encourage Disability
Benefits Applications? Evidence from the Health and Retirement Study"
(2008);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Examine the behavioral response to the increase in the FRA and the
incentive it creates for older workers to apply for DI instead of
early retirement benefits;
* HRS;
* Compare DI application rates among two cohorts: those born between
1931 and 1937 are the control group (because their FRA remains
unaffected at age 65) and those born between 1938 and 1940 are the
treatment group (because their FRA was raised above age 65);
Key results and implications: Effects on claiming disability and
retirement benefits:
* After controlling for differences in observable characteristics, an
average 4-month increase in the FRA slightly increases the 2-year DI
application rate by 0.04-0.30 percentage points. The effect is
significantly greater among people with a work-limiting health problem
(0.22-0.89 percentage points);
* The results imply that an increase in the FRA has small effects on
applications for DI. Even though the effect is larger among people
with a work-limiting health problem, people with health problems only
account for about 12% of the sample studied.
Authors, study, and date (in chronological order): Mastrobuoni: "Labor
Supply Effects of the Recent Social Security Benefit Cuts: Empirical
Estimates Using Cohort Discontinuities" (2009);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Study the effects of the 1983 Amendments' increase in the FRA on
retirement behavior;
* Current Population Survey monthly data;
* Limit data to January 1989 to January 2007 for nondisabled
individuals born between 1928 and 1941 (and who are thus age 61-65).
Use regression analysis;
Key results and implications: Effects on claiming disability and
retirement benefits:
* Workers reacted strongly to the increase in the FRA. The average
retirement age for cohorts that were subject to increasing FRAs was
rising by about 1 month every year, or 50% of the increase in the FRA;
* The increase is larger when controlling for other factors that have
changed over time and that influence the labor supply decision of
older workers.
Distributional effects:
Authors, study, and date (in chronological order): Munnell, Meme,
Jivan, and Cahill: "Should We Raise Social Security's Earliest
Eligibility Age?" (2004);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Examine the effects of raising the EEA from 62 to 64 on vulnerable
groups and the Social Security system;
* HRS;
* Divide the sample into those who claim Social Security early
("Takers") and those that do not ("Postponers"). Further divide the
Takers into those who receive 80% or more of their income from Social
Security ("Social Security Dependent")--as this is the group that
would be clearly affected by a higher EEA--and those who do not. Use
regression analysis to estimate the probability of respondents being
employed based on several factors;
Key results and implications: Effects on claiming disability and
retirement benefits:
* A higher EEA is likely to keep individuals in the labor force
longer. Since about half of all people claim benefits at age 62,
raising the EEA could increase labor force participation for about 40%
of 62 year-olds;
* About 10% of early claimers, or 4% of all individuals aged 62, are
in poor health and do not have a source of income (other than work or
Social Security) that would keep them out of poverty. These are the
people who would be hurt by raising the EEA;
* Ensuring that these individuals could cover basic living expenses
between ages 62 and 64 would require an expansion of social programs
such as DI or SSI. While this group's poverty rates would initially
increase, poverty rates would be lower for this group by age 65 than
the rates under current law due to the higher monthly benefits that
they would receive;
* The estimated net change in OASDI spending from an increase in the
EEA would be about $9 billion a year. Assuming that 4% of people aged
62 would require SSI benefits, beyond the assistance offered by DI,
the cost of the expanded safety net would rise by another $1.4 billion.
Authors, study, and date (in chronological order): Mermin and
Steuerle: "Would Raising the Social Security Retirement Age Harm Low-
Income Groups?" (2006);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Examine the potential distributional impacts of raising the
retirement age by about 3 years;
* Urban Institute's Dynamic Simulation of Income Model (DYNASIM3);
* Simulate two policy alternatives: (1) raising the FRA to age 69 and
8 months and the EEA to 65, and (2) combining a slightly larger
retirement age increase with an enhanced minimum Social Security
benefit. Examine lifetime benefits for individuals born between 1976
and 1980 and annual total retirement income for all beneficiaries in
2050;
Key results and implications: Effects on claiming disability and
retirement benefits:
* Simulation 1 results. Raising the retirement age does not
disproportionately impact vulnerable groups because low-income workers
are more likely to be disabled;
people with disabilities (who are on DI) are protected from the
retirement age change. High school dropouts, African Americans, and
workers in the lowest fifth of earners are more likely to be
disability beneficiaries than college graduates, whites, and workers
in the top fifth. However, a higher retirement age could push about
1.5 million people below the poverty level in 2050;
* Simulation 2 results A higher retirement age in conjunction with a
minimum benefit only slightly increases the wage-indexed poverty rates
as compared to scheduled benefits, and raises lifetime benefits for
workers in the bottom fifth of earners by 6%. The modest cost of the
minimum benefit examined here could be paid for by a 6-month increase
in the FRA.
Effects on the OASDI trust funds:
Authors, study, and date (in chronological order): GAO: "Social
Security Reform: Implications of Raising the Retirement Age" (1999);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Assess how raising the retirement age could affect (1) the OASI and
DI trust funds and the Supplemental Security Income (SSI) program, (2)
the labor market for older workers, and (3) vulnerable populations;
* HRS and SSA data;
* Use a policy simulation model (EBRI-SSASIM2) to assess the effects
of retirement age increases on trust fund solvency;
interview experts on retirement behavior;
conduct literature review;
Key results and implications: Effects on claiming disability and
retirement benefits:
* Raising the full or early eligibility age or both could have net
positive effects on the OASDI trust funds by reducing retirement
benefits paid out and increasing payroll taxes collected;
* Raising the ages could lead to economic growth, as workers would be
likely to extend their careers, and increase the number of older
workers in the labor force. However, increasing the number of older
workers in the labor force could create additional unemployment;
* DI and SSI caseloads could increase. More older workers might apply
for DI because of the increase in the generosity of DI relative to
retired workers' benefits. The number of disabled SSI recipients could
increase because more individuals are likely to become disabled as the
number of working years increases;
* Older workers who are less healthy and those in blue-collar
occupations (especially African-American and Hispanic workers) may
face significant barriers to continued employment.
Authors, study, and date (in chronological order): Panis et al.
(RAND): "The Effects of Changing Social Security Administration's
Early Entitlement Age and the Normal Retirement Age" (2002);
Objectives, data source, and methodology: Effects on claiming
disability and retirement benefits:
* Determine the financial consequences of increasing the EEA, FRA or
early retirement penalty (ERP) on the OASDI program;
* HRS;
* Develop option value, peak value, and joint option value models that
explain when workers retire and whether and when they enroll in DI.
Apply model estimates to policy scenarios and simulate how workers
will change their behavior. Apply Social Security rules on
contributions and benefits to determine how this changed behavior
affects OASDI contributions and benefits;
Key results and implications: Effects on claiming disability and
retirement benefits:
* At best, increasing the EEA by one year would not change the
financial position of the OASDI program;
at worst, it could increase OASDI liabilities by 2%;
* Increasing the FRA and ERP is likely to lower OASDI liabilities
substantially. Each year of FRA increase saves approximately 5% in
benefits. An increase in the ERP from 5/9 of a percent to 1% for each
month before the FRA saves about 12% in benefits. In each case, a
small portion of the savings will be lost due to increased DI
enrollment.
Source: GAO analysis.
[End of table]
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Daniel Bertoni, (202) 512-7215 or bertonid@gao.gov:
Acknowledgments:
In addition to the contact listed above, Michael J. Collins (Assistant
Director), Mark M. Glickman (Analyst-in-Charge), Jillian M. Fasching,
and David M. Reed were the primary authors of this product. We also
acknowledge the contributions made by Seyda G. Wentworth, Carol D.
Petersen, and Susannah L. Compton.
[End of section]
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Highlights of a Forum: Participant-Identified Leading Practices That
Could Increase the Employment of Individuals with Disabilities in the
Federal Workforce. [hyperlink,
http://www.gao.gov/products/GAO-11-81SP]. Washington, D.C.: October 5,
2010:
Highlights of a Forum: Actions That Could Increase Work Participation
for Adults with Disabilities. [hyperlink,
http://www.gao.gov/products/GAO-10-812SP]. Washington, D.C.: July 29,
2010.
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Will Require Comprehensive Planning. [hyperlink,
http://www.gao.gov/products/GAO-10-667T]. Washington, D.C.: April 27,
2010.
Social Security Disability: Additional Performance Measures and Better
Cost Estimates Could Help Improve SSA's Efforts to Eliminate Its
Hearings Backlog. [hyperlink, http://www.gao.gov/products/GAO-09-398].
Washington, D.C.: September 9, 2009.
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Return-to-Work Efforts. [hyperlink,
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and Beneficiaries. [hyperlink, http://www.gao.gov/products/GAO-01-35].
Washington, D.C.: January 24, 2001.
Social Security Reform: Implications of Raising the Retirement Age.
[hyperlink, http://www.gao.gov/products/GAO/HEHS-99-112]. Washington,
D.C.: August 27, 1999.
[End of section]
Footnotes:
[1] See The 2010 Annual Report of the Board of Trustees of the Federal
Old-Age and Survivors Insurance and Federal Disability Trust Funds.
[2] The Social Security Amendments of 1983 (P.L. 98-21) raised the FRA
from age 65, starting with retirees born in 1938, gradually up to age
67 for those born in 1960 or later.
[3] In addition, an increase in disability claims would result in
increased administrative costs for the agency because, according to
SSA, the costs for adjudicating disability claims are much higher than
the cost of adjudicating retirement claims.
[4] The HRS is a national panel study intended to provide data related
to retirement, health insurance, saving, and economic well-being. Data
is collected by the Institute for Social Research, University of
Michigan. For more information see [hyperlink,
http://hrsonline.isr.umich.edu/].
[5] In this report, "older workers" refers primarily to those workers
approaching the EEA, but may also include those working up until their
FRA--typically, workers in their early sixties.
[6] The actuaries project that the impact on the trust funds would
range from negative 0.03 percent of taxable payroll to 0.62 percent,
depending on whether the EEA, FRA, or both are raised; the magnitude
and speed of the increase; and how workers alter their retirement
behavior. However, the provisions reflect published estimates only,
and do not include the full range of options. For instance,
beneficiaries who delay their retirement from age 62 to a later age
will have larger benefits for the rest of their lives. In addition,
SSI and other public assistance benefits would be reduced with a
larger Social Security benefit.
[7] Under the current formula, the benefit reduction is 5/9 of 1
percent for each month up to 36 months before the FRA and then 5/12 of 1
percent for each additional month.
[8] The DI and OASI benefit formulas calculate the primary insurance
amount (PIA) using a workers Average Indexed Monthly Earnings (AIME).
For an individual in 2010, PIA replaced a total of 90 percent of the
first $761 in AIME, 32 percent of earnings between $761 and $4,586,
and 15 percent of the AIME more than $4,585.
[9] Workers age 62 and older need 40 credits to qualify for DI.
Workers younger than 60 need less than 38 credits with the exact
number needed for eligibility dependent upon the age of the applicant.
As of 2010, individuals receive one credit for each $1,120 of earnings
to a maximum of four credits per year.
[10] If the applicant is not initially approved for disability, then
the individual may pursue appeals at several levels. First is
reconsideration by State Disability Determination Services' staff. The
next appeal goes to an administrative law judge followed by an appeal
to an appeals council. Finally, an individual can appeal to Federal
Court.
[11] For more on this topic, see GAO, Social Security Disability:
Additional Performance Measures and Better Cost Estimates Could Help
Improve SSA's Efforts to Eliminate Its Hearings Backlog, [hyperlink,
http://www.gao.gov/products/GAO-09-398] (Washington, D.C.: Sept. 9,
2009) and Social Security Disability: Management of Disability Claims
Workload Will Require Comprehensive Planning, [hyperlink,
http://www.gao.gov/products/GAO-10-667T] (Washington, D.C.: April 27,
2010).
[12] Richard W. Johnson, "Employment at Older Ages: Opportunities and
Challenges, July 2010 and Richard W. Johnson and Gordon B.T. Mermin,
"Older Americans' Economic Security Will Changing Job Demands Boost
Older Workers' Prospects?" (Washington, D.C.: Urban 15 Institute,
September 2008.)
[13] Natalia Zhivan, Steven A. Sass, Margarita Sapozhnikov, and Kelly
Haverstick, "An Elastic Earliest Eligibility Age for Social Security,
(Boston, MA: Center for Retirement Research at Boston College, Number
8-2, February 2008.)
[14] Incidence is the number of DI awards per 1,000 DI-insured workers
not already receiving benefits.
[15] Richard W. Johnson, Melissa M. Favreault, and Corina Mommaerts,
"Work Ability and the Social Insurance Safety Net in the Years Prior
21 to Retirement," (Washington, D.C.: Urban Institute, The Retirement
Policy Program Discussion Paper 10-01, January 2010.)
[16] Richard W. Johnson and Gonna Mommaerts, "Age Differences in Job
Loss, Job Search, and Reemployment," Prepared for the 12th
Annual Joint Conference of the Retirement Research Consortium
(Washington, D.C.: August 2010).
[17] The effects on disability incidence rates and the OASDI deficit
would depend on how high and how quickly the ages were raised, and how
workers alter their retirement behavior in response to the changes.
[18] A 2006 study by Mermin and Steurele finds that, compared to
currently scheduled benefits, raising the retirement ages increases
the share of beneficiaries age 62 and older with family incomes below
the wage-indexed poverty level in 2050 from 28 14.4 percent to 16.2
percent, an increase of 1.5 million people.
[19] Medicare and health care reform could also influence individuals'
decisions to apply for DI. DI beneficiaries become eligible for
Medicare 2 years after their DI benefits commence, so any change to
the Medicare eligibility age could change incentives to apply for DI.
To the extent that health care reform increases health insurance
coverage among older workers, this could reduce the importance of
Medicare eligibility in creating an incentive to apply for DI.
[20] See appendix II for a summary of studies that examine the effects
of raising the retirement ages on applications for disability and
retirement benefits.
[21] Incidence is the number of DI awards per 1,000 DI-insured workers
not already receiving benefits. Scenarios based on the Intermediate
Assumptions of SSA's 2010 Trustees Report.
[22] Higher disability incidence rates could lead to increased
Medicare costs because DI beneficiaries become eligible for Medicare 2
years after their DI benefits commence.
[23] David Autor and Mark Duggan, "The Growth in the Social Security
Disability Rolls: A Fiscal Crisis Unfolding" (The Journal of Economic
39 Perspectives, Vol. 20, No. 3, Summer 2006).
[24] For more on the elastic EEA, see footnote 7 and Zhivan, Sass,
Sapozhnikov, and Haverstick (2008).
[25] See David C. Stapleton, Employment Support for the Transition to
Retirement: Can a New Program Help Older Workers Continue to 45
Work and Protect Those Who Cannot? (Washington, D.C.: AARP Policy
Institute, April 2009).
[End of section]
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